Economic and Empirical Facts about Privately Issued Tokens

James T.E. Chapman

Bank of Canada

4/3/23

The views expressed in this presentation are solely those of the author and may differ from official Bank of Canada views. No responsibility for them should be attributed to the Bank of Canada.

Plan of talk and key points

Crypto-currencies a talk in three acts

The era of crypto currencies (2009-2015)

- BTC gets lost a lot
- Miners are very concentrated

The era of smart contracts (2015-2018)

- Tokens and exchanges start and fail all the time
- The real interesting thing is the exchange

The current era of Decentralized Finance (DeFi) (2018-present)

- "Stable"coins have gotten large very fast
- DeFi has also grown but is still relatively small

Era of Crypto-currencies

In the beginning was Bitcoin…

  • “The path to Bitcoin is littered with the corpses of failed attempts.” BTC built on a the work of CS researchers to create a digital money that began in the 90s.
  • Key points about Bitcoin for the graphs below:
    • All responsibility is with the user
    • Miners are central to this process

BTC takes off…

But people lose their keys…(like me)

Each area is the share of BTC that has not moved in that amount of time (ex 10 years+ in top right corner)

Mining is a concentrated market

BTC is losing dominance in cryptomarkets

BTC is only about 40% of all crypto marketcap.

Era of smart contracts (2015-2018)

Etherium: the world computer

  • Etherium was launched in 2015 as a platform for smart contracts. This is the most successful platform for them
  • A smart contract is a piece of code on the blockchain that has the ability to move value (ie tokens) between addresses.

The Importance of ETH in the Ecosystem

Initial Coin Offerings (ICOs)

  • Individuals could build platforms on the Etherium blockchain with their own tokens
  • Also with little regulation (true wild west)
  • The rise of ICOs also led to a rise in exchanges

Exit and Entry of Coins

Exchange Entry and Exit

Tokens listing on exchanges

Exchange per crypto

Era of DeFi (2018-)

Stablecoins

  • Stablecoins were developed to provide investors a way to park their value in a “safe” instrument.
  • Three types of stablecoins:
    • TradFi backed (Tether, USDC): connections to traditional finance could cause financial instability
    • Crypto backed (Dai): business model not been stress tested yet
    • Algorithic (Terra): Not a stable business model
  • Has become central to DeFi

Marketcap of Stablecoins

Decentralized Finance

  • Smart contracts and stablecoins formed the basis on which decentralized finance was built
  • Users pledge (lock) tokens into a given DeFi entities smart contract.

Total Value Locked

Total Value Locked

Conclusion

Conclusion

Still lots of research questions to explore and crypto is a great laboratory to do it in since:

  1. The data is very good and relatively cheap
  2. Lack of regulation allows innovation to run unchecked

BUT…

  • Open question about how sector will behave in era of high interest rates?
  • We all lose coins. What happens in the long-run?

“Where can I find the data?”

This talk (available on GH “james-crypto-research/EUI_2023”) uses data from the following data sources: